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While many commodities are struggling, good news continues to pour in for the platinum-group metals. This time, many analysts are becoming more bullish on palladium, largely thanks to supply worries in the market.

In fact, according to Ross Stachan, commodities economist at Capital Economics, palladium prices could have further to run by the end of 2014. In a recent MarketWatch piece, he declared that prices for platinum and palladium could rise by about a fifth before the end of next year, mostly on the back of supply concerns from some of the big producers in South Africa.

Car Market

It also doesn’t hurt that demand is keeping up, pushed higher on solid auto sales. Total annualized sales of domestic vehicles are holding steady above 12 million, and this could help to buoy palladium demand in the near term (read Palladium and Platinum ETFs to Soar?).

This is especially important as palladium is a key component in catalytic converters for gasoline-powered engines, something that is more popular in the U.S. and China than it is in Europe. So the slowdown in European car sales hasn’t been as much of an issue for palladium, while it has detracted from platinum’s appeal in the same time frame.

Russian Connection

Investors should also note that Russia, along with South Africa, is a key supplier of palladium supplies. The country is very hush-hush on its stocks of the metal though, so investors must glean information from a variety of tangential reports.

One such source is the Swiss trade figures, as the country is a major thoroughfare for the metal. Imports were quite low once again, leading many to think that Russia is running low on its palladium reserves.

Recent History

Investors have already started to see these factors influencing prices, at least in the ETF market. (PALL - ETF report), tracking physical palladium, and (PPLT - ETF report), tracking physical platinum, have both easily beaten out broad commodity products like (DBC - ETF report) in the YTD period (see Zacks Top Ranked Platinum ETF in Focus).

However, it is worth pointing out that PALL has also done much better than PPLT, managing to hold on to gains while others have faltered. PALL is actually now the only metal of the four precious metals to still be in the green YTD, suggesting it has been a great play in this relatively short time frame.

Palladium Outlook

We tend to agree with this bullish outlook for PALL, as the fund currently receives a Zacks ETF Rank of 2 or ‘Buy’ over the next 12 months. This means that we look for this ETF to outperform similar products over the next year, and continue its solid run in Q2 (see 3 Commodity ETFs Still Going Higher).

So for investors still seeking to make a commodity ETF play, PALL may be an overlooked choice. The commodity is pretty unpopular when compared to any other product in the precious metals group, so there still could be some gains to be had in the space, especially if current trends continue.

Despite the relative unpopularity though, PALL has attracted a decent level of assets and sees a solid amount of volume around the 75,000 share mark. This helps to keep the bid-ask spread low for PALL, and it should make this ETF a solid choice for investors seeking to trade quickly in the product (see Trade Goldman’s Commodity Picks with These ETFs).

Given this decent liquidity and some of the strong fundamentals, PALL may be a good pick for investors in Q2. This is particularly true when comparing PALL to other commodity ETFs, as the future appears far brighter for palladium than it does for many of the other commodities at this time.

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Author is long PPLT.

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